Chinese stocks took another battering on Monday in the worst start to a second half of a year since 2015, as selling resumed amid worries over a falling currency, housing curbs and the impact of US trade tariffs.
The Shanghai Composite Index sank 2.5 per cent, more than wiping out a 2.2 per cent rally on Friday, and extending last month’s 8 per cent rout. The yuan retreated 0.5 per cent to an eight-month low after depreciating by a record in June. The pace of the currency’s descent has surprised analysts, with ING Groep cutting its forecast for the second time in days.
Shanghai stocks have tumbled into a bear market amid concern the economy will struggle to withstand rising tensions with the US. China’s purchasing manager index readings for June released on Saturday showed a gauge of export orders shrinking, suggesting the trade war is already weighing on growth. Domestic issues are also hurting sentiment, with a gauge of property shares falling to the lowest since October 2016 on Monday.
"Expectations that China will impose more property controls are weighing on developer shares as the market is still overheated," said Jiang Yining, an analyst in Shanghai with Capital Securities.
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Shanghai’s property stock index fell 5.4 per cent. Poly Real Estate Group tumbled 9.8 per cent, while Gemdale lost 6.3 per cent. Developers have been under pressure as the government stepped up measures to curb real estate speculation and restrict developers’ international bond issuance.
The yuan traded at 6.6534 per dollar. ING cut its forecast to 7 from 6.6 in a note, saying the depreciation reflects the risks of a trade war, while the central bank is allowing market forces to dictate the speed of the declines.
Bonds started July on a stronger note, with the yield on 10-year government debt falling 1 basis point to 3.47 per cent, its lowest level since April 2017.
Hong Kong’s markets were closed for a holiday.